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Australian developer Lendlease Group has suspended work on its A$1.9 billion ($1.23 billion) office and apartment complex in San Francisco due to a struggling West Coast real estate market. With a decline in annual core profit, Lendlease seeks to mitigate risks before further investment. The project's pause aligns with a global trend of reduced demand for office space and rising property values, impacting California's commercial real estate market. Lendlease's decision reflects challenges faced by the industry, as property valuations drop by 7%, notably affecting the office segment. Despite these hurdles, the company's funds under management have grown by 9% to A$48.3 billion.
Lendlease Group, an Australian developer, has halted construction on a $1.23 billion office and apartment project in San Francisco due to challenges in the struggling West Coast real estate sector. This decision follows a decline in their yearly core profit. The commercial real estate market in California has been severely affected on a global scale due to remote work reducing the need for office space, coinciding with increasing interest rates that impact property values and loan expenses.
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In May, a report from Jones Lang LaSalle revealed that office access in San Francisco was the furthest from the pre-pandemic norm, dropping by 58%—the largest decrease worldwide. Earlier this year, Lendlease temporarily halted progress on the 47-story Hayes Point development located in central San Francisco. This project is their most significant investment in the Americas.
Lendlease has a global presence, participating in real estate ownership, investment, and management, which includes a substantial A$33 billion office portfolio. The developer disclosed a statutory post-tax loss of A$232 million, attributed to property value adjustments and a provision of $295 million to address safety concerns in certain UK buildings, including those with flammable cladding.
Property values experienced a decline of approximately 7%, resulting in a decrease of A$175 million throughout the portfolio. Within this portfolio, the office sector saw a decrease of roughly 9%.Core operating profit after taxes, excluding one-time items and valuation adjustments, stood at A$257 million, marking a 7% drop compared to the previous year. Funds under management expanded by 9%, reaching a total of A$48.3 billion.
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